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John Key has reinforced his former reputation as banking's "smiling assassin", giving two of his loyal ministers just hours notice they would be sacked to bring fresh blood into his ministry.

In a shock move yesterday, Key dumped Conservation Minister Kate Wilkinson and Housing Minister Phil Heatley, handing his portfolio to reinstated minister Nick Smith with orders to bring new energy and fresh ideas to the role.

Key had been expected to promote Smith, who was sacked last year over a letter he wrote as ACC minister supporting a claim by an old friend. But the scope of his reshuffle came as a surprise, with Auckland Central MP Nikki Kaye promoted straight into the Cabinet and Tauranga MP Simon Bridges given full Cabinet rank.

He called Heatley only hours before the public announcement and told Wilkinson in Christchurch late on Monday.

Both have confirmed they will stay on as backbenchers and be "team players", but Key said they were surprised and disappointed when told the news though they had understood his thinking.

"They have done nothing wrong . . . They had four years to make a great contribution. They have been good ministers but I want to give others a chance."

The Pike River report, which sparked Wilkinson's resignation from the labour portfolio last year, had nothing to do with her demotion, he said.

At the same time, he signalled two of the Government's biggest headaches - housing affordability and the teachers' payroll debacle - would be top priorities this year.

In his state of the nation speech in Auckland on Friday, Key is expected to round out the Government's priorities with a promise to fight unemployment and boost jobs.

He confirmed that David Carter would be nominated as Speaker, to replace Lockwood Smith, although Labour yesterday signalled it may try to frustrate his election next week because it was not consulted on the move.

In a sign National is rattled by the popularity of Labour's promise to build 10,000 affordable houses a year, and as property prices threaten to reignite, Key said he had appointed Smith to bring "his trademark energy to housing market and social housing issues".

He also appointed Social Development Minister Paula Bennett as associate housing minister.

Key has stripped Craig Foss of his associate education role, with responsibility for the Novopay fiasco handed to Economic Development Minister Steven Joyce.

The change signals a more aggressive response to provider Talent2, which Key said was now "on notice".

Others to win promotion in yesterday's reshuffle include list MP and chief whip Michael Woodhouse, who becomes a minister outside the Cabinet, and ministers Jonathan Coleman and Amy Adams, who were promoted up the rankings.

Labour leader David Shearer will deliver his state of the nation speech on Sunday and announce his own reshuffle next month.